The economics of time

How is a project different from production?

Before you read on, take a minute and write down how a project differs from a production environment.

Most people start with the same word: uncertainty. A production line repeats the same work; a project does something for the first time, with many unknowns. Uncertainty is the hallmark of a project.

Many ways to classify projects

You can slice project environments in many ways, and each slice tells you about a different kind of difficulty:

• By industry. Engineering-procurement-construction (EPC); new product development in automotive, pharma, consumer goods; engineer-to-order (ETO); software.
• By dimension of complexity.
  • Visual complexity: software has no physical product to look at, so everything must be imagined, which brings its own limits.
  • Regulatory complexity: in generic pharma, the hard part isn’t developing the product but complying with regulators.
  • Integration complexity: in ETO, many engineered sub-systems must come together, be assembled and be tested before the project is done.
• By resourcing.
  • Single project: a greenfield plant, with a dedicated team.
  • Multi-project: many projects sharing common functions like design and procurement, as in EPC.
  • Multi-single and mixed environments.

Does each kind need its own solution? Remarkably, no. Collect complaints from project managers in any of these environments and they sound the same: due dates missed, too many changes, resources unavailable, permissions and decisions late, priority clashes, cost overruns, rework.

All of them come down to compromises between three tightly linked objectives: time, budget and scope (including quality). Push on one and the others suffer. And most compromises on budget and scope are made under pressure of time. Control time, and the other two largely fall into line. That is the inherent simplicity of the project world.

What is time worth?

If you could cut a project’s lead time by 10%, would profit rise by 10%? Less? More?

Run the numbers for a multi-project company. Finishing projects in 75% of the time, with the same people and infrastructure, releases about 25% of capacity for more projects. Operating expenses don’t change: no new hiring, no new investment. And projects that finish on time stop running over budget.

A 25% cut in lead time more than doubles profit: about +125%, and about +187% once cost overruns stop. Try the slider the other way, too: delays destroy profit just as fast.

Is that realistic?

Three objections usually follow. A 25% capacity release sounds impossible. Doing it without adding operating expense sounds impossible. And doing it in an environment this complex sounds impossible.

It is possible under two conditions:

1. The wastage of time is significant.
2. The wastage is within our control.

Look at a project’s total execution lead time. Project teams usually explain delays as external: the customer, the authority, the supplier. But only about 30% of lead time is touch time, actual work. External delays are real, but a large share of what’s left is internal: interruptions, slow-downs and rework. Those are within the project team’s control. Remove a good part of them, and there is time left over to absorb the delays you genuinely can’t avoid.

Check your understanding

Answer all five. Get four right to complete the lesson.

1. Generic pharma development is hard mainly because of…

• Visual complexity
• Integration complexity
• Regulatory complexity
• Too few projects

The product is known; complying with regulators is the challenge.

2. Do different project environments need different solutions?

• No: their complaints are the same and boil down to time
• Yes, one per industry
• Yes, one per complexity type
• Only software is different

The symptoms are universal, and so is the leverage point: time.

3. In a multi-project company, cutting lead time by 25% with the same resources mainly…

• Raises operating expense
• Reduces turnover
• Has no effect on profit
• Releases capacity for about 25% more projects

Same people, more projects completed.

4. Why does profit rise much more than the capacity released?

• Prices rise
• Operating expenses stay the same, so the extra contribution goes straight to profit
• Variable costs disappear
• Taxes fall

Fixed costs don’t grow with the extra projects.

5. Big gains from cutting lead time are possible only if…

• Projects are small
• The market grows
• The wastage of time is significant and within our control
• Customers pay in advance

Both conditions hold in most project organisations.